Startup Basics: How Do You Read a Cap Table?

As a startup founder, it's important to understand your company's capitalization. But with all those numbers on a spreadsheet, how do you read a cap table and interpret your figures?

A cap table lists all of the current shareholders in a company and their corresponding equity stakes. It also shows how much dilution has occurred over time through various financing rounds.

So why is it important to know how do you read a cap table?

Because knowing who owns what percentage of your company can help you make informed decisions about things like issuing new shares, selling shares, or raising money from investors.

Plus, if you're ever considering selling your business, understanding your cap table will be critical in negotiating the best possible price for your company.

Ready for your next investment? Gain exclusive access to the best companies that Angel School has vetted. Our investors see success through our excellent deal flow and world-class diligence. We source hundreds of companies and invest selectively, with a fully transparent process. So join our growing global community, and see what a diversified deal flow and a talent for choosing good deals can do for you.

What Is a Cap Table?

A cap table lists all of the securities issued by your company and their corresponding ownership percentages.

Why is this important?

Because your cap table can help you make informed decisions about fundraising, dilution, and equity compensation. Plus, it's good to periodically review your cap table to make sure it's accurate and to track any changes in ownership percentages.

So what exactly is a cap table?

Let's break it down.

A company's capitalization refers to the mix of equity and debt that it has used to finance its operations.

A company's equity is composed of the shares that have been issued to its shareholders. Each share represents a certain percentage of ownership in the company.

The debt portion of a company's capitalization includes any loans or bonds that have been issued. Unlike equity, debt does not represent ownership in the company. Instead, debt is like a loan that must be repaid with interest.

A company's capitalization is represented in a document called a cap table. This table lists all of the securities issued by the company, as well as the corresponding ownership percentages for each security.

The cap table can be a helpful tool for startup founders for a number of reasons.

First, it can help you track how much equity has been diluted over time.

Second, it can help you understand how much equity you need to raise in order to reach your desired ownership percentage.

And finally, it can help you determine how to structure your equity compensation packages.

If you're a startup founder, it's important to understand your company's capitalization. And the best way to do this is to review your cap table on a regular basis. This will help you make informed decisions about fundraising, dilution, and equity compensation.

How Do You Read a Cap Table?

If you're new to reading cap tables, don't worry - it's not as complicated as it looks.

The first thing you'll see on a cap table is a list of the shareholders in the company, along with their respective ownership percentages. This information is important for understanding how much equity each shareholder has in the company.

Next, you'll see a list of the company's outstanding shares. This includes all of the shares that have been issued to shareholders, as well as any shares that have been reserved for future issuance (such as employee stock options).

Finally, you'll see the total number of shares that are authorized for issuance by the company. This is the maximum number of shares that can be issued by the company and is typically set in the company's articles of incorporation.

By understanding how do you read a cap table, you'll be able to better understand your company's equity data and make informed decisions about issuing and selling shares.

Why It's Important to Understand Capitalization

As a business owner, it is important to understand your company's capitalization in order to make informed decisions about how to grow and manage your business.

Your cap table can give you insights into how much equity each shareholder owns, the value of your company's stock, and how dilution will impact future ownership stakes.

Reviewing your cap table on a regular basis can help you track progress toward financial goals and avoid potential pitfalls down the road.

For example, let's say you're considering taking on a new investor in order to help finance the growth of your business.

Reviewing your cap table can give you a clear picture of how much equity you currently have and how much you would be willing to give up in order to bring in the new investment.

This can help you avoid giving up too much equity and losing control of your company.

When to Review Your Cap Table

Your company is growing and attracting attention from investors. You're in the process of raising a round of funding, and you want to make sure that your equity is structured in the most favorable way possible.

One of the documents that you'll need to review in order to do this is your cap table.

You should review your cap table whenever there is a major event that affects the ownership of your company, such as an acquisition or financing round. This will help you to keep track of changes in your company's equity structure.

FAQs About How Do You Read a Cap Table

How do you analyze a cap table?

The capitalization table shows the shareholders' ownership in the business, which is simply the stock price multiplied by the number of stocks they own. The names of the owners will usually be listed along the Y-axis and the type of stock along the X-axis.

How do you calculate price per share on a cap table?

Divide your pre-money valuation by the total fully-diluted capitalization.

What do VCs look for in a cap table?

• Total amount of equity that has been issued.
• Percentage of ownership each shareholder has.
• Valuation of the company.
• Liquidation preference.

Conclusion

So why is it important to learn how do you read a cap table?

Because knowing who owns what percentage of your company can help you make informed decisions about things like issuing new shares, selling shares, or raising money from investors.

Plus, if you're ever considering selling your business, understanding your cap table will be critical in negotiating the best possible price for your company.

‍